One of the most famous thought-experiments in economics is Bastiat‘s story of the broken window, which the French economist used to argue against the common belief that destruction stimulates economic activity. In Economics in One Lesson, Henry Hazlitt uses the broken window to argue against the belief that war stimulates economic activity. What follows is Hazlitt on war. Those who want to read the background, Hazlitt on the broken window, should click MORE, below.
“…SO WE HAVE finished with the broken window. An elementary fallacy. Anybody, one would think, would be able to avoid it after a few moments’ thought. Yet the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by chambers of commerce, by labor union leaders, by editorial writers and newspaper columnists and radio and television commentators, by learned statisticians using the most refined techniques, by professors of economics in our best universities. In their various ways they all dilate upon the advantages of destruction.
“Though some of them would disdain to say that there are net benefits in small acts of destruction, they see almost endless benefits in enormous acts of destruction. They all tell us how much better off economically we all are in war than in peace. They see ‘miracles of production’ which it requires a war to achieve. And they see a world made prosperous by an enormous ‘accumulated’ or ‘backed-up’ demand. In Europe, after World War II, they joyously counted the houses, the whole cities that had been leveled to the ground and that ‘had to be replaced.’ In America they counted the houses that could not be built during the war, the nylon stockings that could not be supplied, the worn-out automobiles and tires, the obsolescent radios and refrigerators. They brought together formidable totals.
“It was merely our old friend, the broken-window fallacy, in new clothing, and grown fat beyond recognition. This time it was supported by a whole bundle of related fallacies. It confused need with demand. The more war destroys, the more it impoverishes, the greater is the postwar need. Indubitably. But need is not demand. Effective economic demand requires not merely need but corresponding purchasing power. The needs of India today are incomparably greater than the needs of America. But its purchasing power, and therefore the ‘new business’ that it can stimulate, are incomparably smaller. …
“Many of the most frequent fallacies in economic reasoning come from the propensity, especially marked today, to think in terms of an abstraction – the collectivity, the ‘nation’ – and to forget or ignore the individuals who make it up and give it meaning. No one could think that the destruction of war was an economic advantage who began by thinking first of all of the people whose property was destroyed.
“Those who think that the destruction of war increases total ‘demand’ forget that demand and supply are merely two sides of the same coin. They are the same thing looked at from different directions. Supply creates demand because at bottom it is demand. The supply of the thing they make is all that people have, in fact to offer in exchange for the things they want. In this sense the farmers’ supply of wheat constitutes their demand for automobiles and other goods. All this is inherent in the modern division of labor and in an exchange economy. …
“In all this discussion, moreover, we have so far omitted a central consideration. Plants and equipment cannot be replaced by an individual (or a Socialist government) unless he or it has acquired or can acquire the savings, the capital accumulation, to make the replacement. But war destroys accumulated capital.”
A young hoodlum, say, heaves a brick through the window of a baker’s shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers, and begins to stare with quiet satisfaction at the gaping hole in the window and the shattered glass over the bread and pies. After a while the crowd feels the need for philosophic reflection. And several of its members are almost certain to remind each other or the baker that, after all, the misfortune has its bright side. It will make business for some glazier. As they begin to think of this they elaborate upon it. How much does a new plate glass window cost? Two hundred and fifty dollars? That will be quite a sum. After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glazier will have $250 more to spend with other merchants, and these in turn will have $250 more to spend with still other merchants, and so ad infinitum. The smashed window will go on providing money and employment in ever-widening circles. The logical conclusion from all this would be, if the crowd drew it, that the little hoodlum who threw the brick, far from being a public menace, was a public benefactor.
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will in the first instance mean more business for some glazier. The glazier will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $250 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit (or some equivalent need or luxury). Instead of having a window and $250 he now has merely a window. Or, as he was planning to buy the suit that very afternoon, instead of having both a window and a suit he must be content with the window and no suit. If we think of him as a part of the community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
The glazier’s gain of business, in short, is merely the tailor’s loss of business. No new “employment” has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glazier. They had forgotten the potential third party involved, the tailor. They forgot him precisely because he will not now enter the scene. They will see the new window in the next day or two. They will never see the extra suit, precisely because it will never be made. They see only what is immediately visible to the eye.
See also “Frederic Bastiat (1801-1850): Between the French and Marginalist Revolutions,” by Thomas J. DiLorenzo, and “Biography of Henry Hazlitt (1894-1993),” by Llewellyn H. Rockwell, Jr.
Buy Economics in One Lesson, by Henry Hazlitt (and help support Antiwar.com)!